[GNC] Fundamentals of stock split

[Kalpesh Patel]

This might not be a GNC question as much as Commodities Trading 101
question.

 

So I have been trying to get my head wrapped around what exactly is a stock
split at a very fundamental level (leaving specifics of entering into
personal financial management software out). Mr. Ralls was nice enough to
give me how-to enter BHF split from MET back in February that took place on
July 18 2017; not exactly a stock split but a spin-off. Thanking him for
giving me a "fish" at that time. But now I want to "go fishing" myself for
how splits work and understand the mechanics of it. What is *incorrect* in
this not so elegant statements (and example):

 

-          Buy X shares for total of $Y on date ABC (example: 3 shares at $5
= $15 total cost)

-          On the split date that is post ABC date, it splits at a ratio of
2.5:1. My total number of shares increase by 1.5X plus original X for total
equal to 1.5X + X or 2.5X (example: 2.5*3 = 7.5 shares) -- I have not
mentioned any changes to cost basis here on purpose - original cost basis
remains as is but this simply increases number of share that I now have

-          Since I had odd number of shares so if I am paid cash in-lieu for
fractional shares, wouldn't the broker SELL my 0.5 shares at whatever the
going market price is and then deposit that proceeds into my account say $Z
amount (example: paid me $2)

-          Is capital gain on the fractional share: $Z -
($Y/2.5X)*shares_sold  (example: $2 - ($15/7.5)*0.5 = $2 - $1 = $1)

 

Thanks.